As reported in Part 1 of our 2013 End of Year Plan Sponsor “To Do” Lists, Section 6039 of the Internal Revenue Code (the Code) requires employers to provide an information statement to each employee or former employee regarding: (1) the transfer of stock pursuant to the exercise of an Incentive Stock Option (ISO); and (2) the transfer by the employee or former employee of stock purchased at a discount under an Employee Stock Purchase Plan (ESPP). For ISO grants and ESPP transfers that occurred in 2013, the required information statements must be provided to employees and former employees no later than January 31, 2014. In addition, employers must file a corresponding return with the Internal Revenue Service (IRS) by February 28, 2014 for paper filings and March 31, 2014 for electronic filings.

ISO Exercises that Occurred in 2013

The IRS requires that IRS Form 3921 be used to satisfy both the employee information statement and IRS return requirement for reporting ISO exercises. IRS Form 3921 requires disclosure of the following information:

• Name, address and employer identification number of the corporation transferring the stock upon the exercise of the ISO.
• Name, address and social security number (or tax identification number) of the person to whom the shares were transferred pursuant to the exercise of the ISO.
• The date the ISO was granted.
• The exercise price per share.
• The date in 2013 when the ISO was exercised.
• The fair market value of a share of stock on the date the ISO was exercised.
• The number of shares of stock transferred pursuant to the exercise of the ISO.

The deadline for providing employees with a copy of Form 3921 for 2013 ISO transactions is January 31, 2014. Employers must file a corresponding Form 3921 with the IRS by February 28, 2014 for paper filings and March 31, 2014 for electronic filings.

Discounted ESPP Share Transfers that Occurred in 2013

The IRS requires that IRS Form 3922 be used to satisfy both the employee information statement and IRS return requirement for reporting the first transfer of legal title of discounted shares acquired pursuant to an ESPP. IRS Form 3922 requires disclosure of the following information:

• Name, address and employer identification number of the corporation whose stock was transferred.
• Name, address and social security number (or tax identification number) of the transferor (the person who originally acquired the shares pursuant to the ESPP).
• The date of grant of the purchase right pursuant to the ESPP (typically the offering date for the relevant ESPP offering period).
• The fair market value of the stock on the date of grant.
• The date when the shares were purchased.
• The fair market value of a share of stock on the date the shares were purchased.
• The purchase price per share at which the shares were actually purchased under the ESPP.
• The price per share determined as if the shares were purchased on the date of grant (only required if the purchase price per share is not fixed or determinable on the date of grant).
• The date in 2013 when legal title to the shares was first transferred.
• The number of shares to which legal title was transferred.  

The deadline for providing employees with a copy of Form 3922 for 2013 ESPP share transfers is January 31, 2014. Employers must file a corresponding Form 3922 with the IRS by February 28, 2014 for paper filings and March 31, 2014 for electronic filings.

The failure to timely file Form 3921 and/or Form 3922, as applicable, can subject an employer to the penalties described in Section 6721 and 6722 of the Code.

Circular 230 Disclaimer: To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication, including any attachments, is not intended, and cannot be used, for the purpose of: (i) avoiding any federal tax penalty; or (ii) promoting, marketing, or recommending any transaction or matter to another person.